Purchase Solution

Capital Asset Pricing Model (CAPM): Kellogg common equity

Not what you're looking for?

Ask Custom Question

1. Use the Capital Asset Pricing Model (CAPM) to find the expected return on Kellogg common equity. Use monthly price data for the last ten years (ending June 2004). The following steps will guide you through this problem.

A. Using the FRED database, (http://research.stlouisfed.org/fred2/) calculate the average return on 10-year treasury constant maturity rate bonds. Use this as your estimate of the risk free rate.

B. Find the average return for the S&P 500 as an estimate of the return on the market. (One source for the past prices of stocks and levels of indices is MSN Money, (http://moneycentral.msn.com/home.asp) where the symbol for the S&P 500 index is '$INX' and for Kellogg is 'K').

C. Using the regression function in Excel, find the beta for Kellogg using the S&P 500 as a proxy for the market.

D. Using the data and results from the previous questions, find the expected return on Kellogg common equity according to the Capital Asset Pricing Model (CAPM).

Please submit as an attached Excel file

Purchase this Solution
Solution Summary

The solution
1) Using the FRED database, calculate the average return on 10-year treasury constant maturity rate bonds. This is an estimate of the risk free rate.
2) Finds the average return for the S&P 500 as an estimate of the return on the market.
3) Using the regression function in Excel, finds the beta for Kellogg using the S&P 500 as a proxy for the market.
and
4) Using the data and results obtained above, finds the expected return on common equity according to the Capital Asset Pricing Model (CAPM).

Solution Preview

See attached file:
1) The calculations for beta and average return is on the sheet " ...

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

View More Free Quizzes
Related BrainMass Solutions

  • Discount Rate Explanation

    What are some strengths and weaknesses of the Capital Asset Pricing Model? Strengths of the Capital Asset Pricing Model (CAPM): CAPM yields an accurate, precise estimate of the required rate of return, rs.

  • Cost of equity capital and the CAPM for Time Warner

    195588 The cost of equity capital and the CAPM for Time Warner Review the capital asset pricing model and the dividend growth model.

  • Capital Asset Pricing Model (CAPM) & Discounted Cash Flow (DCF)

    38705 Capital Asset Pricing Model compared to Discounted Cash Flow Why does the Capital Asset Pricing Model (CAPM) give a different result than Discounted Cash Flow (DCF)?

  • CAPM and the Constant Dividend Growth Model

    611079 CAPM and the Constant Dividend Growth Model Capital Asset Pricing Model The Capital Asset Pricing Model (CAPM) is a powerful analytical tool used for calculating the price of common stock.

  • Cost of Equity Capital & the CAPM

    183825 Cost of Equity Capital and the CAPM I need assistance with the following assignment: Review the background material on the capital asset pricing model and the material on the dividend growth model (of Module 2).

  • Capital Asset Pricing Model Assistance

    Illustrate why some managers have difficulty applying the Capital Asset Pricing Model (CAPM) in financial decision making.

  • Dividend Growth Model or the Capital Asset Pricing Model

    165062 Dividend Growth Model or the Capital Asset Pricing Model Do you feel that the Dividend Growth Model or the Capital Asset pricing Model is more accurate in determine the cost of a firm's common equity? Defend your answer.

  • Cost of equity

    Formula under constant growth assumption is as follows: Stock price= Estimated dividend of next year/Current Stock price +Growth CAPM Model According to Investopedia.com, the Capital Asset Pricing Model (CAPM) "describes the relationship between

  • Jackson Technology's Average Cost of Capital

    The capital asset pricing model (CAPM) is a model that provides a framework to determine the required rate of return on an asset and indicates the relationship between return and risk of the asset. Assumptions of CAPM ? Market efficiency ?

View More Related Solutions